Profit and gloss

Demand for Champagne is outstripping supply, so the marketers are bumping up the bottom line with more exclusive offers, finds David Longfield
27 August, 2008
Page 42 
Bordeaux has its First Growths and Burgundy its tiny Grand Cru vineyards, but Champagne is a special case. Everything about it shrieks exclusivity, the exception to the rule . Yet, at the same time, it stands for good times and celebration and has become increasingly accessible to a wider cross-section of consumers.

In the face of ever-increasing demand (see Analysis, page 29) the Champagne industry is being squeezed by lack of new vineyard space, and the major producers are turning to added-value strategies to find new opportunities to increase profits.

That's where the prestige cuvées come in. They're expensive - current UK retail prices for the benchmarks are around £90 for Dom Perignon and Belle Epoque, £95-£100 for Krug Grande Cuvée, £150 for for Roederer Cristal and £95 for Clicquot La Grande Dame - but what exactly are they? There is no official definition - it's essentially down to what each house decides to package and market as its prestige, special or deluxe cuvée.

Daniel Lorson, head of marketing at the Comité Interprofessionnel du Vin de Champagne , says: "I would say that the first contact for a consumer is the distinctive packaging - shape, clear glass, special label and so on. The second difference is the price, which can be only twice as much as a NV, or three or four times or more."

It's a subject that lies at the heart of the philosophy behind each Champagne house involved, and on which the Champenois themselves like to wax lyrical.

Specialist in the field is the house of Krug which, since its establishment in 1843, has concerned itself solely with the production of prestige cuvées. "Champagne houses build their ranges as a pyramid," says president and chief executive Panos Sarantopoulos. "NV, vintage, and at some point in time - and in some cases as an afterthought - they will create a special cuvée. In many cases it will have some sort of special significance internally, commemorating a person or a date, for instance.

"We have the Grande Cuvée that defines the very style of our house - it's the star in our solar system and the other styles revolve around it. Then you have the exception: Clos du Mesnil - single vineyard, single vintage, single varietal. It is the blonde-haired princess, sister of four dark-haired boys."

In the eye of the beholder

Going further, Alexis Petit-Gats, international sales director for Canard-Duchene, which produces the prestige Grande Cuvée Charles VII range, adds that it can even come down to public perception. "It depends which consumer you are talking about," he says. "There are only very few prestige cuvées, probably two, that the general public would think about, and most would probably not be able to link those to the Maison to which they belong. On the other hand, if you explore the prestige cuvée category with consumers more interested in Champagne, they will refer to tête de cuvée and know about it."

"It's a knowledge-led market," agrees Chris Seale, head of Champagnes at Pernod Ricard UK, "in which understanding quality, craftsmanship and rarity is key."

"The price for prestige cuvée is driven by the quality: the best grapes, special winemaking, longer ageing," says Dominique Demarville, deputy cellar master at Veuve Clicquot. "But also because these cuvées are rare. Often, when people are buying prestige cuvée, they are not looking at the price but they are looking at the name, the quality, the packaging. It is the same when we offer flowers to a lady - we are not looking at the price but at the pleasure we will give ."

CIVC's Lorson agrees: "The quality itself - and they can be multi-vintage, vintage or NV - is not the only factor," he says. "If the consumer is solely interested in quality, he might look for a small producer instead of a prestige cuvée. Rarity is important, even if it's only a perceived rarity by the consumer. As well the history, if any, matters for many consumers."

In London, conspicuous consumption has been driven by city bonus culture, and consumers are motivated by the fact that prestige cuvées are the best, along with all other deluxe brands. "We're getting more requests from our [London] clients for old and rare vintages," says Seale. "Consumers understand that rarity and availability drive price." And price, argues Krug's Sarantopoulos, is not relevant except in relation to producers' own ranges.

Creation of value

So prestige cuvées are a seemingly guaranteed route to increased profits. "It's true that more producers want the consumer to trade up," says Lorson. "The creation of value is crucial. NV is still 85 per cent of total Champagne sales, and those who drink it are very price sensitive. So a good way to increase turnover faster is to sell more vintage, rosé and prestige cuvée."

But, he adds, not all producers are likely to win out at the top end: "For those houses that already have a prestige cuvée it would be [commercially] dangerous to see newcomers. For any newcomers it is difficult, requiring a lot of investment in launches and ongoing promotion."

At Pernod Ricard, the last 12 -18 months ha ve been about integrating ex-Allied Champagnes Mumm and Perrier-Jouët into the portfolio, and in that time the company has launched a Blanc de Blancs extension of its iconic Perrier-Jouët Belle Epoque and the Mumm Cuvée R Lalou - the first Mumm prestige cuvée since the 1985 vintage of the former Mumm René Lalou cuvée.

"A higher style of Belle Epoque was a natural extension for us, with Belle Epoque already being a Chardonnay-driven style," says Chris Seale. "Mumm is now in a very different position to where it was even 10 years ago. The time was right to launch a prestige cuvée."

Chef de caves Didier Mariotti says: "Cuvée R Lalou truly reflects the GH Mumm vineyard, the heart of the house. Selecting and working with individual vineyard parcels; harvesting, pressing and vinifying each lieux dit separately - this is the dream of every Champagne oenologist."

"The temptation is certainly bigger today than a few years ago to develop more prestige cuvées," cautions Dominique Demarville. "It will not detract from the value of the existing ones if they keep their level of quality. When the volume of prestige cuvée increases, it can be dangerous for the NV because the best wines are used for the top quality wines. At Veuve Clicquot we do not do La Grande Dame or a Vintage if the quality of the year is not enough good to secure our Yellow Label."

Limited ultra-premium

Setting aside the challenges of limited grape supplies and the need for hefty marketing budgets, the future for Champagne looks certain to include growing numbers of prestige cuvées from both existing producers and new players. "It seems the Grandes Maisons are trying to develop this category because Champagne is, by definition, an ultra-premium and limited product," says Alexis Petit-Gats.

"We would expand La Grande Dame, however production is limited by the capacity of the eight Grands Crus [vineyards] to deliver enough wines for the blend and also by the quality level of each vintage," says Demarville.

"The big players are well established and difficult to compete with," says Daniel Lorson. "But the cake is growing, and the Champenois are trying to add new value-added segments to their portfolios.

"Today's world economy is making more people rich, and they are more likely to spend over E100 to buy something impressive."
----=== Champagne shipments Jan-Dec 2006,

bottles exported ===Overall Cuvées Spéciales Vintage Cuv Sp NV Total % of overall

UK 36,789,527 509,392 100,899 610,291 1.7

US 23,159,336 1,531,916 187,509 1,7194,25 7.4

Germany 12,287,012 191,416 45,433 236,849 1.9

Belgium 9,303,397 42,285 23,029 65,314 0.7

Italy 9,284,697 464,009 80,105 544,114 5.9

Japan 8,013,676 1,563,471 192,929 1,756,400 21.9

Switzerland 5,445,004 217,450 32,357 249,807 4.6

UAE 831,902 89,594 1,844 91,438 11.0

Russia 731,322 51,413 3,074 54,487 7.5

World 140,435,937 5,877,846 857,886 6,7357,32 4.8

Source: CIVC